Mortgage Insurance Premium Tax Deduction

Mortgage Insurance Premiums Are Still Tax Deductible

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Mortgage insurance premiums are sometimes tax deductible—at least through the end of the 2016 tax year. The Tax Relief and Health Care Act first introduced the mortgage insurance deduction in 2006, and Congress extended it in 2015 when it passed the Protecting Americans from Tax Hikes Act. The deduction is scheduled to expire on December 31, 2016, but Congress renews it again. This is one of those deductions that the government now reviews annually.

 

Loans That Qualify 

The mortgage insurance premium deduction applies only to loans taken out on or after January 1, 2007. The insurance policy must be for home acquisition debt on a first or second home. A home acquisition debt is one whose proceeds are used to buy, build or substantially improve a residence.

Typically, if you’re unable to make a down payment of at least 20 percent, your lender will require private mortgage insurance to secure the debt if you default. The insurance policy can be issued by a private insurance company or by the Federal Housing Administration, the Department of Agriculture’s Rural Housing Service or the Department of Veterans Affairs.

Mortgage insurance policies on cash-out refinances and home equity loans don't qualify for the deduction. 

Income Limitations 

Your adjusted gross income cannot exceed $109,000, or $54,500 if you’re married and filing a separate tax return.

The deduction begins “phasing out” at lower limits, however: when your income exceeds $100,000 for single, head of household and married filing jointly taxpayers. If you’re married filing a separate return, the deduction phases out at $50,000.

The phase-out requires that after your income reaches these thresholds—$100,000 or $50,000—you must subtract 10 percent from the amount of premiums you paid for each $1,000 you go over.

Then, at income levels of $109,000 or $54,500, the deduction is eliminated entirely.

You can find your AGI on line 37 of your Form 1040 tax return.

Claiming the Deduction

There’s currently no limit on the amount of the deduction you can claim if you and your loan qualify. 

Mortgage insurance premiums paid during the year can be reported on Form 1098. You should receive this form from your lender after the close of the tax year. You can find the amount you paid in premiums—which corresponds to the amount of the deduction you can claim—in box 4.

Prepaid insurance premiums can be allocated over the term of the loan or 84 months, whichever period is shorter, under a ruling from the IRS announced in Notice 2008-15.

Mortgage insurance premiums are an itemized tax deduction and are reported on line 13 of Schedule A, the form that lists your itemized deductions. You can’t claim the mortgage insurance premiums deduction if you claim the standard deduction—you must itemize.  

NOTE: Tax laws change periodically, and you should consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and is not a substitute for tax advice.